Disney: Awakening The Sleeping Giant

seekingalpha2022-03-19

SummaryDisney+ is on track to meeting its FY2024 targets and will be doubling the number of original content as well as the number of markets it's operating in.ESPN's huge scale could bring additional...

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Comments

DenisL
2022-03-21
DenisL
Sleeping is right description. Been too long! Wake up!!
FionBai
2022-03-21
FionBai
Ok
lappiloco
2022-03-21
lappiloco
Ok
xuero
2022-03-21
xuero
Agree with fysx49. Even if covid continue to spread its video streaming business will help to bring in money. [Call] [Call] [Call]
Syww
2022-03-21
Syww
[Strong]
Yappy
2022-03-21
Yappy
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Furthermore, the market is under-pricing the chance of Disney+ achieving its FY2024 targets, which in my view, is becoming much more achievable with the current roadmap.Sports could be an interesting bright spot for Disney as ESPN could leverage on its huge scale to enter sports betting, which is what many of its ESPN consumers want.Parks segment will see a strong recovery in FY2022 due to increasing domestic and international guests at its attractions as travel resumes and heads back towards pre-COVID times.OverviewWhen looking at Disney, it's important to note the revenue mix of the company. There are two main segments to Disney:Disney Media & Entertainment Distribution (DMED) segment which makes up 75% of revenues in 2021. This segment was formed in 2020 as part of Disney's reorganisation of its media and entertainment business and as it focuses more on the segment. This segment includes streaming services,, linear and syndicated television networks. This includes the direct-to-consumer units like Disney+, Hotstar, ESPN, HuluDisney Parks, Experiences & Products (DPEP) segment which makes up 25% of revenues in 2021. This is Disney's most iconic travel and leisure business which includes its 6 resort destinations in the United States, Europe and Asia, as well as its cruise line.However, the revenue mix in FY2020 and FY2021, in my opinion, is more skewed towards DMED segment due to the huge impact on DPEP segment as the COVID 19 pandemic struck in 2020 and the impacts continued to linger in 2021. Of course, there is also the trend of fast growing DMED segment due to the increasing penetration of Disney's DTC streaming services like Disney+Revenue mix and growth of Disney (Disney Annual Reports)When looking at the operating income mix, I think it is quite clear that the DPEP segment has not just seen a decline in revenues, but also margin reduction due to the low volumes in its parks and attractions. That said, at pre-COVID levels, the DPEP segment was one of the more profitable segments at around 27% operating margins. In my opinion, it is a matter of time before Disney's DPEP segment operating margins will normalise as customers return to its parks.Disney Operating Income Mix and Growth (Disney Annual Reports)Disney+ is well positioned for the futureWith net adds to Disney+ subs being 11.8 million in 1QFY22, this beat on consensus shows me that the market may perhaps be underpricing the probability of Disney+ achieving its long term 2024 target of achieving 230 million to 260 million subscribers.Furthermore, what makes me more optimistic about Disney+ is the strong slate of marquee content coming in 2QF22 and beyond.Overall, Disney is almost doubling the amount or original content from its marquee brands in Disney+ in FY2022, with most of these titles coming online in 2HFY22, particularly between July and September. In 2QF22, Pixar will release Turning Red (11 March) and Marvel releases Moon Knight (30 March).More highly anticipated releases in 3QF22 and after will include 2 new Star Wars series Andor (To be announced) and Obi-Wan Kenobi (25 March), new Marvel series Ms. Marvel (To be announced) and She-Hulk (To be announced), a live-action Pinocchio(To be announced) starring Tom Hanks, and Hocus Pocus 2 (FY2023).Management reiterated that they have more than 340 local original titles in various stages of development and production for their DTC platforms over the next few years. Local content offerings are also increasing in Asia, India, Europe, and LatAm in FY2022, with the majority of those titles releasing in F2H22.In my opinion, this will be a pivotal moment for Disney+ as 4QFY22 will be the first time in Disney+ history that the company will be releasing original content throughout the quarter from all of Disney, Marvel, Star Wars, Pixar, and Nat Geo.Although there could be some risk of subs deceleration in 2QFY22 due to the back end weighted content in the second half of the year. That said, the focus should really be on 2HFY22 as, in my opinion, there could be meaningfully much higher net adds to subscriber base, partly due to content release schedule in 2HFY22, and also the international launches happening as Disney+ expands its reach globally.In the 1QFY22 management call, management emphasised Disney+'s expansion globally. In FY2022, the company plans on bringing Disney+ to more than 50 more countries. This includes countries in Central Eastern Europe, the Middle East, and South Africa.In total, management has plans to more than double the number of markets Disney+ is in now from 80 currently to more than 160 markets by FY2023. I would expect that the initial impact of these planned market launches will be most evident in F3Q22. As such, I am of the opinion that we will continue to see quarter over quarter improvements in Disney+ net adds from 8 million net adds in 2QFY22, to 12 million net adds in 3QFY22.Sports could be a future bright spotIn the November 10 2021 earnings call, Bob Chapek, CEO of Disney, said that the company will expand into sports betting through ESPN. Although this may not sound like anything new, this is the first time ESPN's parent company, Disney, acknowledged that sports betting will be beneficial to the parent company and will not affect Disney's brand. This sets a clear signal that the top management in Disney is giving the go ahead to go deeper and bigger into the world of sports betting.In fact, sports betting has been something the company has been dipping its toes into. In 2020, ESPN got into an agreement with both Caesars Entertainment and DraftKings to link to their sportsbooks fromThere were talks in August 2021 about ESPN, at that time, was in discussions to potentially explore a brand licensing deal with DraftKings or Caesars Entertainment for $3 billion.Bob Chapek mentioned that the company wants to have a greater presence in online sports betting and can leverage on ESPN's reach and scale to partner with 3rd parties in the sports betting space.In my opinion, this could help Disney create brand new revenue streams and bring growth to ESPN, especially as ESPN advertising revenues were flat in the 4th quarter of 2021 when compared to the same quarter a year before. However, its streaming service EPSN+ grew subscribers by 66% over the year and almost 90% of the most watched broadcasts on Disney's owned TV networks were sports events. Thus, I think that to leverage on this strength that Disney has would make lots of sense not just for ESPN, but for Disney as a whole.In addition, the move to sports betting would also attract and retain a younger audience and keep the momentum growing for ESPN. Furthermore, it is noted by Chapel that the consumer wants to have sports betting and to meet the needs of the ESPN customers, Disney needs to move into sports betting or risk missing a great opportunity or even being irrelevant in the future.Recovery of parks will bring huge revenue and operating income upsideIn 1QFY22, the Parks segment saw a material beat in revenues and operating incomes which in my view is a sign that we could be seeing structurally stronger growth rates in revenue as well as operating margins normalisation as international parks and domestic parks fully open and as travel returns to pre-pandemic levels.Although there were lower attendance than 2019, Parks revenue and operating income matched pre-pandemic levels due to the higher yield benefits with per cap spending up more than 40% compared to 1QFY19.Furthermore, based on the latest results, trends in attendance at Disney's domestic parks have continued to increase as Walt Disney World and Disneyland 1QFY22 attendance was up double digits compared to that of 4QFY21. This was likely also reflecting the seasonality effects of the holiday season.Moving forward, although there is likely to be continued impact from COVID in the form of volatility, Disney's domestic parks will likely see continued strong demand from domestic guests while international parks will likely see a surge in demand in the latter half of the year. This is due to the increased closures like that of Hong Kong Disneyland currently being temporarily closed.For my longer term forecasts, I believe that we could see per caps spending sustain above pre-COVID levels and thus this will drive higher margins for the segment. Driven by huge volume and customer growth both from domestic and international guests, the recovery in Disney's Parks segment will be significant in FY2022.ValuationBased on above points mentioned, I developed a financial model for Disney to come up with a valuation using sum of the parts (SOTP) valuation of the different segments. Due to the currently unprofitable nature of DTC, this was forecasted using longer term DCF model for the DTC segment.SOTP Valuation of Disney (Author generated model)Based on the SOTP valuation, I derived a target price of $197, and there is a 43% upside potential for Disney based on current price levels.Looking to relative valuation, when comparing Disney with Netflix (NFLX), one of Disney's competitors in the streaming services market, the forward P/E ratios of both companies are somewhat similar at about 31x to 32x 1 year forward P/E.Data by YChartsHowever, as highlighted in earlier sections, Disney's growth is likely to be higher than that of Netflix due to the higher growth from DPEP segment as travel recovers, and also from DMED segment as Disney+ content releases bring in record numbers of net adds and subscribers. As can be seen below, although Disney's revenues plunged in 2020, its starting to show faster growth in 2021 as it continues to recover from the COVID situation.Data by YChartsRisksCompetitionWe are seeing increased competition in the streaming space. Although Disney has a strong franchise of brands in Disney+, competitors like Netflix, Apple TV (AAPL) and Amazon Prime Video (AMZN) could significantly increase content and marketing trend, competing for the same eyeballs for streaming services and thereby restricting Disney's subscriber and margin growth.COVID related risksAs Disney's traditional travel and leisure Parks business is very susceptible to global travel and tourism trends, any increase in COVID related measures in any geographies that Disney's parks are operating in could result in slower than expected recovery.ConclusionAll in all, there is a good risk reward investment opportunity for Disney at the current levels. With Parks segment set to see margin improvement to above pre-COVID levels as well as see traffic return, this will bring about a huge growth in revenues and profits from the profitable parks business. Furthermore, Disney continues to execute well in its streaming business, with 2HFY22 being a very exciting time for Disney+ as it rolls out to more markets and as it releases much more original marquee content that could reach a wide range of audiences. Based on SOTP valuation, my target price for Disney is $197, implying 43% upside from current levels, which is an attractive investment opportunity in my view.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":9034196640,"gmtCreate":1647822536217,"gmtModify":1676534268414,"author":{"id":"4088158505984320","authorId":"4088158505984320","name":"DenisL","avatar":"https://static.tigerbbs.com/0d13e043c2c38e5d7bfd53d016d5c6bf","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"Sleeping is right description. Been too long! Wake up!!","listText":"Sleeping is right description. Been too long! Wake up!!","text":"Sleeping is right description. Been too long! Wake up!!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034196640","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034320669,"gmtCreate":1647816926800,"gmtModify":1676534267002,"author":{"id":"4090580354975560","authorId":"4090580354975560","name":"FionBai","avatar":"https://static.tigerbbs.com/b95d850dba878781b5dde71a539605b6","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034320669","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034364133,"gmtCreate":1647816551707,"gmtModify":1676534266956,"author":{"id":"4102578986641510","authorId":"4102578986641510","name":"lappiloco","avatar":"https://community-static.tradeup.com/news/d533ea278e6d41d71194d1f54aeee83e","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":3,"crmLevelSwitch":1},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034364133","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034363134,"gmtCreate":1647815242651,"gmtModify":1676534266814,"author":{"id":"4099055228687120","authorId":"4099055228687120","name":"xuero","avatar":"https://static.tigerbbs.com/043271093c85fc090b9b3f3a6e36cec5","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"Agree with fysx49. Even if covid continue to spread its video streaming business will help to bring in money.&nbsp;[Call]&nbsp;[Call]&nbsp;[Call]&nbsp;","listText":"Agree with fysx49. Even if covid continue to spread its video streaming business will help to bring in money.&nbsp;[Call]&nbsp;[Call]&nbsp;[Call]&nbsp;","text":"Agree with fysx49. Even if covid continue to spread its video streaming business will help to bring in money. [Call] [Call] [Call]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034363134","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034369323,"gmtCreate":1647815036316,"gmtModify":1676534266782,"author":{"id":"4087953623473280","authorId":"4087953623473280","name":"Syww","avatar":"https://static.tigerbbs.com/eb83576edbcfb98efcb33d606f168221","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"[Strong]&nbsp;","listText":"[Strong]&nbsp;","text":"[Strong]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034369323","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034387406,"gmtCreate":1647814829372,"gmtModify":1676534266757,"author":{"id":"3572077804076143","authorId":"3572077804076143","name":"Yappy","avatar":"https://static.tigerbbs.com/ab4d89913ade03f15c782b99132ba22f","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034387406","repostId":2220726035,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":2064,"commentSize":0,"repostSize":0,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2220726035"}